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Chapter 2

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Department
Economics
Course
Economics 2152A/B
Professor
xxxxx
Semester
Fall

Description
Gross domestic product (GDP): the dollar value of final output produced during a given period of time within the borders of Canada. -published by Statistics Canada as port of the National income and Expenditure Accounts (NIEA). -part of the increase due to inflation - Three approach to measure GDP: give exactly the same measure of GDP 1) Product approach (value-added approach): the sum of value added to goods and services in production across all productive units in the economy. The total value added =the total value of all goods produced – the total value of all intermediate goods 2) Expenditure approach: total spending on all final goods and services production in the economy The total expenditure = C+ I + G +NX = GDP -C: expenditures on consumption -I: investment expenditure -G: government expenditure -NX: net exports 3) Income approach: add up all incomes received by economic agents contributing to production Includes: -the profits made by firms -compensation of employees: wages, salaries, and benefits, corporate profits, net interest, net income of farm operators and unincorporated businesses, taxes less subsidies on factors of production, taxes less subsidies on products, government business enterprises profits before taxes, inventory valuation adjustment, and depreciation) The total income: Y = C+ I + G +NX =GDP Income-expenditure identity: aggregate income is equal to the sum of the components of aggregate Exp. Y = C+ I + G +NX After-tax profits = Total revenue – Wages – Interest – Cost of intermediate inputs – Taxes Intermediate good: a good that is produced and then used as an input to another production process Gross national product (GNP): measures the value of output produced by domestic factors of production, whether or not the production takes place inside Canadian borders. -measure of aggregate production GDP leave out? -aggregate GDP does not take into account how income is distributed across the individuals in the population. -GDP leaves out all nonmarket activity The components of aggregate expenditure  Consumption: is expenditure on consumer goods and services during the current period  Durable goods: household appliances, furniture, and video equipment  Semi-durable goods: clothing window coverings, footwear  Nondurable goods and services: food, electricity, fuel  Investment: expenditure on goods that are produced but not consumed during the current period. ( or used life more than 1 year, like car) -small fraction of GDP, very important role in business cycle  Fixed investment: production of capital, such as plant, equipment, housing - Non-residential investment: adds to the plant, equipment, and software that make up the capital stock for producing goods and services - Residential investment: housing  Inventory investment: consists of goods that essentially put into storage.  Net exports  Government expenditures: consist of expenditures by federal, provincial or territorial, and municipal governments on final goods and services. -only the expenditures on final goods and services, does not include transfers which is not included in the GDP (ex: insurance).  Government consumption  Government gross investment Price index: is a weighted average of the prices of a set of the goods and services produced in the economy over a period of time. Price level: the average level of prices across all goods and services. Inflation rate: the rate of change in the price level from one period of time to another -determine how much of a change in GDP from one period to another is purely nominal and how much real.  Nominal change: a change in GDP that a occurred only because the price level changed  Real change: an increase in the phy
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